Per-Market Information Leakage and Order-Flow Skill: Two Methodological Lenses on Informed Trading in Decentralized Prediction Markets
Three different ways to spot who's trading on secret information in prediction markets
Researchers compared three methods for identifying informed traders on decentralized prediction markets and found they actually measure different things — not competing versions of the same measurement. One method flags accounts with consistent winning streaks, another identifies accounts behaving suspiciously over time, and a third measures how much information leaked into individual markets before public announcement. Using all three together catches more genuine insider traders than any single method alone.
Prediction markets are increasingly used for real-world forecasting on politics, business, and science, but they only work if prices reflect genuine information rather than insider knowledge or manipulation. The framework here—demonstrated against a real DOJ indictment of a military officer who traded on nonpublic Venezuela intelligence—gives regulators and platform operators a practical toolkit to detect and stop informed traders before they undermine market integrity.